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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Shri J. Sudhakar Reddy & Shri S.S.Viswanethra Ravi
Per Shri J. Sudhakar Reddy, A.M. This appeal filed by the Revenue is directed against the order of ld. Commissioner of Income Tax (Appeals)-IV, Kolkata dated 03.10.2013 for the assessment year 2009-10.
The facts in brief are that the assessee is a Company, which is engaged in the business of tea and coffee auctioneering, financing and rubber handling. It filed its return of income for the assessment year 2009-10 through e-filing on 29.11.2010 showing total income of ./2014 Assessment year: 2009-2010 Page 2 of 5 Rs.3,31,90,721/-. The Assessing Officer passed an order under section 143(3) of the Act on 30.12.2011 determining the total income at Rs.4,77,63,850/-, inter alia making addition on account of building repairs and bad debts. On appeal, the first appellate authority allowed these additions made by the Assessing Officer for the various reasons given in his order. Aggrieved, the Revenue has filed an appeal before the Tribunal on the following grounds:- “That on the facts and circumstances of the case, the ld. CIT(A) has erred in law in deleting the disallowance made on repair and maintenance expenditure to the tune of Rs.52,72,402/- without considering the fact that the said expense far exceeds the amount of Rs.12,34,957/- charged as depreciation on building and that the major construction works like maintenance on building, water supply, plumbing and sanitation, etc. are in the nature of major additions and not quintessential repair work and, therefore, should have been capitalized.
And that on the facts and circumstances of the case, the ld. CIT(A) has erred in law in allowing bad debt to the tune of Rs.82,34,907/- without considering the fact that the appellant failed to establish as to the legal efforts taken to recover the debts. Also, it could not be established whether the amounts, written off as bad debt were taken as income in earlier years which is a pre- condition of writing off of any bad debt”.
We have heard Shri R.S. Biswas, ld. CIT, D.R. on behalf of the Revenue and Ms. Karishma Jaiswal, ld. A.R. on behalf of the assessee.
On a careful consideration of the facts and circumstances of the case and the perusal of papers on record and the orders of the authorities below as well as the case law cited, we hold as follows:- Ground No. 1 is against the deletion of disallowance made on repairs and maintenance expenses to the tune of Rs.52,72,402/- by the ld. CIT(Appeals). The assessee had incurred the total amount of Rs.1,01,64,986/- on account of repairs and maintenance of the buildings used by the assessee for the purposes of its business. The Assessing Officer’s record shows that the depreciation charged to the building
I.T.A. No. 275/KOL./2014 Assessment year: 2009-2010 Page 3 of 5 account is Rs.12,34,957/- and whereas repairing expenses of the building including repairs and maintenance comes to Rs.52,72,402/-. Hence, he was of the view that the amount of expenditure incurred for repairs should have been capitalized and added to the value of the assets. After considering the expenditure incurred on maintenance of garden, security arrangement, water supply, plumbing and sanitary, miscellaneous expenses, etc. as allowable, he disallowed the balance amount of expenditure claimed. The first appellate authority considered the submissions of the assessee that the details of expenses incurred for repairs and maintenance of the building was in the nature of electrical repairing work of office building as well as residential accommodation used by the employees of the company and relying on the decision of the Hon’ble Supreme Court in the case of Ballimai Naval Kishore –vs.- CIT [224 ITR 414 (SC)] deleted the disallowance. He also referred to the decision of his predecessor in the assessee’s own case for the assessment year 2007-08 and 2006-07 on the very same issue and followed the same. We find that the Tribunal in assessee’s own case for the assessment year 2007-08 in and ITA No. 554/KOL/2012 for assessment year 2006-07, order dated 29.04.2015 at para 4, considered a similar addition and adjudicated the same in favour of the assessee. As the revenue has not brought anything on record to demonstrate its point of view that the expenditure in question was incurred in the capital field, we uphold the order of the first appellate authority and dismiss this ground of appeal.
5. Ground No. 2 is against the deletion of a disallowance made on account of claim for bad debt of Rs.82,34,907/-. The Assessing Officer disallowed this claim of bad debts on the ground that the assesese could not establish as to the legal efforts taken to recover the debts and also on the ground that the assessee could not demonstrate that these amounts were taken as the income of the assessee in the earlier year. Before the ld. CIT(Appeals), the ld. counsel for the assessee submitted that these were trade advances made to various tea companies, which were written
I.T.A. No. 275/KOL./2014 Assessment year: 2009-2010 Page 4 of 5 off in the year under consideration. It was submitted that the advances were made to M/s. All India Tea & Trading Co., Tonganagaon tea Co. Limited, Amritapur Tea Co. Limited during the normal course of business of the assessee at the interest rate of 21% per annum. On the condition mentioned in section 36(1)(vii) read with section 36(2) of the Act, he submitted that, when a loss arises out of non-recovery of such advances, the same should be allowed as a business loss while computing the profit and gains of business and as the monies were advanced for the purpose of its business. These three companies had financial and certain other difficulties and consequently the agreements could not be executed. Thereafter settlements were arrived between the assesese and these companies, wherein, certain dues were paid to the assessee-company and the balance was written off. The Board of Directors of the assessee- company had recorded these business developments and passed resolution accepting the settlements. Further there were small sundry balances receivable from various tea companies and these were written off as irrecoverable by passing necessary resolutions The assessee relied on the judgment of the Hon’ble Supreme Court in the case of CIT –vs.- Mysore Sugar Company Limited [46 ITR 649(SC)] and by the Hon’ble Madras High Court in the case of Devi Films Private Limited –vs.- CIT [75 ITR 301 (Mad.). Reliance was placed on the judgment of the Hon’ble Supreme Court in the case of CIT –vs.- Abdullabhai Abdulkadar reported in 41 ITR 545. Reliance was also placed on the decision of the Kolkata Bench of this Tribunal in case of DCIT –vs.- ITC Limited in order dated 30.04.2001. The ld. CIT(Appeals) agreed with the contentions of the ld. counsel for the assessee and granted relief. We find no infirmity in this order of the ld. CIT(Appeals). The advances were given by the assessee in the normal course of its business and when a loss arises due to non-recovery of such advances and when the same is irrecoverable and written off as such, the same should be allowed as a loss while computing the profit and gains of business.
./2014 Assessment year: 2009-2010 Page 5 of 5 6. The Hon’ble Delhi High Court in the case of CIT –vs.- Sumangal Overseas Limited (ITA No. 174 of 2011)(Del.) held as follows:- “A trading loss has a wider connotation than a bad debt. A bad debt may also be a trading loss. But a trading loss need not necessarily be a bad debt. There may be a bad debt which may not fall within the purview of section 36(1)(vii) of the Act, but may well be regarded as one eligible for deduction incurred in the course of carrying on business will come under that category and will naturally enter into computing the net total income as the real profit chargeable to tax cannot be arrived at without setting off legitimate trading loss”.
Applying the proposition laid down in this case law to the facts and circumstances of the case, we uphold the finding of the first appellate authority and dismiss this ground of the Revenue.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open Court on February 28, 2017.